Since they work so differently from any other financial product, reverse mortgages have special rules about how much you can borrow. A few things go into calculating this amount for the most common type of reverse mortgage—a home equity conversion mortgage (HECM)—but one of the biggest factors is your age. You generally aren’t eligible for a reverse mortgage until you reach age 62, and the older you are after that, the more you’re often able to borrow.
How Much Money You Can Get From a Reverse Mortgage
The amount of money you’re allowed to borrow with an HECM depends on a few things. One important factor is the interest rate your lender expects you’ll get. The lower the interest rate, the more you’ll be able to borrow against your home. However, an even more important factor is age—both your age and the age of your spouse, even if they won’t be listed on the reverse mortgage. In that case, they’d be known as a “non-borrowing spouse.” Depending on your marital status and your spouse’s age, you’ll use one of two schedules that dictate how much you’re allowed to borrow against your home:
General table: Use this chart if you and your spouse are both age 62 or older, whether or not your spouse will be listed on the reverse mortgage, or if you’re not married.Special table: Use this chart if your spouse is age 18 to 61.
To use the general table, find the age of the younger spouse in the left column, then find your expected interest rate in the top row. The intersection will show the percentage of your home equity you may be eligible to borrow.
Home Equity
It’s best, but not necessary, to have your home fully paid off before you get a reverse mortgage. In this case, you’d have 100% equity, but you may be able to get a reverse mortgage with as little as 50% equity. For example, if your home is worth $500,000, you wouldn’t be eligible for a reverse mortgage until your first mortgage balance is less than $250,000. If you still have a mortgage, you’ll need to use savings or any funds you borrow to pay it off. This requirement can seriously cut into your loan amount and may even make it not worth getting a reverse mortgage. For example, let’s say your home is worth $500,000 and you’re a solo 62-year-old borrower with an expected interest rate of 4%. In that case, you’d be able to borrow up to 47% of your home’s value, or $235,000. But if you still owe $250,000 on your mortgage, there’d be no point in taking out a reverse mortgage because all of the loan proceeds would need to go to the first mortgage, leaving you with no extra money.
Pre-Reverse Mortgage Counseling
Before you take out the reverse mortgage, HUD requires you to pay for a counseling session from an independent provider. The cost can vary. The counselor will fully explain to you how the reverse mortgage works, whether you can afford it based on your finances, and alternatives to reverse mortgages.
Mortgage Insurance, Origination Charges, and Other Fees
A reverse mortgage tends to be an expensive way to borrow money, even if you don’t expect to pay it back in your lifetime. Just like with your first mortgage, a reverse mortgage comes with a host of closing fees, such as origination fees, appraisal costs, and recording charges. You’ll also need to pay two different types of mortgage insurance premiums: an upfront charge of 2% of the amount you’re borrowing, and an annual charge of 0.5% of the balance. You can either pay for these fees out of pocket or roll them into your mortgage balance—but remember that the more fees you finance, the less money you’ll have available to borrow.
Property Upkeep, Property Taxes, and Home Insurance
Since your lender can take possession of your home after you and your spouse (if you have one) are gone, they have a vested interest in making sure your home will be able to fetch a good price on the market. That’s why you’ll need to agree to keep up with regular repairs and maintenance on your home in order to get a reverse mortgage. You’ll also need to stay current on your property taxes and homeowners association fees, and pay for homeowners insurance. If you’re not able to continue meeting these reverse mortgage requirements and your lender finds out, they can call the loan due early. If you can’t pay it off in cash, the lender may foreclose on your home, and you’ll need to find a new place to live. Want to read more content like this? Sign up for The Balance’s newsletter for daily insights, analysis, and financial tips, all delivered straight to your inbox every morning!
